RANKING OF VENDORS BASED ON CRITERIA BY MCDM-MATRIX METHOD-A CASE STUDY FOR COMMERCIAL VEHICLES IN AN AUTOMOBILE INDUSTRY

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1 Internatonal Journal of Latest Research n Scence and Technology Vol.1,Issue 4 :Page No ,November-December (2012) ISSN (Onlne): RANKING OF VENDORS BASED ON CRITERIA BY MCDM-MATRIX METHOD-A CASE STUDY FOR COMMERCIAL VEHICLES IN AN AUTOMOBILE INDUSTRY 1 S. K. Jaral, Assocate Professor, 2 R. K Garg, Professor 1 Mechancal Engneerng Department, D.C. R. Unversty of Scence & Technology, Murthal, Inda Emal: s.jaral@redffmal.com 2 Mechancal Engneerng Department, D.C. R. Unversty of Scence & Technology, Murthal, Inda Emal: romeshkgarg@gmal.com Abstract- It has been found that no sngle vendor s best sutable for each crteron, taken ndvdually. The rankng of vendors changes wth respect to crteron. The proposed determnstc quanttatve models based on mult crtera decson makng (MCDM)- Matrx Methods are capable for analyss, evaluaton, and selecton and rankng of vendors for all crtera consdered collectvely n an ntegrated manner. The results are presented n terms of a mert value of sutablty ndex/ permanent functon whch has been used for rankng of the vendors. The overall rankng of the vendors based on all crtera taken together s made on the bass of decreasng order of sutablty ndex/ permanent functon whch provdes a unque algebrac representaton of the vendor selecton system. The Mathematcal modelng and permanent functon offers necessary techncal knowledge about the system and has been found to be a powerful tool for structural analyss that ncludes characterzaton, dentfcaton, comparson and rankng of vendor selecton systems. Keywords- MCDM-matrx method, Mathematcal modelng vendor, crtera, rankng, INTRODUCTION Wth the globalzaton of trade, the development of nformaton technology, envronment concerns, more transparency requrements, large set of crtera and Govt. regulatons, the proper evaluaton and selecton of vendors s very crucal for the progress and development of every manufacturng ndustry. Wth the emphass on qualty mprovement concepts and wde use of enterprse systems, the managers try to go beyond the conventonal boundares of money and materal and try to explore the vast new unverse of possbltes. Multple-crtera decson-makng (MCDM) s a sub-dscplne of operatons research that explctly consders multple crtera n decson-makng envronments. In our day to day lfe professonal settngs, there are typcally multple conflctng crtera that need to be evaluated n makng decsons. For example, n any automoble ndustry cost s usually one of the man crtera. Qualty s typcally another crteron whch s conflctng wth the cost. In purchasng a car, the crtera that we keep n mnd are cost, comfort, safety, and fuel economy. It s unusual to have the cheapest car to be the most comfortable and the safest. In servce ndustry, customer satsfacton and the cost of provdng servce are two conflctng crtera that would be useful to consder. Vendor analyss, evaluaton, selecton and rankng s the process of fndng the approprate vendors who are able to provde the buyer wth the rght qualty products and/or servces at the rght prce, n the rght quanttes and at the rght tme, Mandal and Deshmukh (1994); Sarks and Tallur (2002). Purchasng nvolves buyng the raw materals, supples, and components for the organzaton. The actvtes assocated wth t nclude selectng and qualfyng vendors, ratng vendor performance, negotatng contracts, comparng prce, qualty and servce, sourcng goods and servce, tmng purchases, sellng terms of sale, evaluatng the value receved, predctng prce, servce, and sometmes demand changes, specfyng the form n whch goods are to be receve. Based on the nformaton, as purchasng s qute vtal for the manufacturer, seekng the rght vendor s utterly sgnfcant for the company. ISSN:

2 2. Qualty Dfferent mult-crtera decson makng (MCDM) approaches have been proposed by the researchers n past, to solve the vendor evaluaton and selecton problem. MCDM- Matrx Methodologes were found wdespread applcaton n decson-makng problems, nvolvng multple crtera n systems of many levels. The methodology s very useful n nvolvng several decson-makers wth dfferent conflctng objectves, tangble and ntangble objectves, to arrve at a consensus decson to select the best sutable vendor n an automoble manufacturng company. Lterature Revew: The cut throat competton n the automoble ndustry has ncreased snce Porter (1975) dentfed that buyers and vendors are only two out of fve crtcal forces that shape the compettve nature of an ndustry.kser (1976) presented a conceptual framework to support hs belef that ndustral purchasng strategy s nfluenced by two strategc choces. The frst choce focuses on the decson regardng the vendor markets to enter when makng a purchase decson. The second choce deals wth the product or component level at whch the frm elects to buy an tem rather than to make t themselves. Jan and Larc (1979) presented a conceptual framework for selecton of an ndustral purchasng strategy. They focussed on the cost of purchased materal and the constrant of materals costs on the frms prcng strategy. Kraljc (1983) suggested a process consstng of four phases to mplement supply management. Carlson s (1990) emprcal research employed case studes to focus on purchasng support of corporate strategy and long term strategc plans. Ellram and Carr (1994) summarzed research work pertanng to the role of the purchasng functon n supportng a frm s strategy. Due to recent development n globalzaton, where vendors are appeared as global players, supply uncertanty s consdered as an mportant ssue n global busness n new emergng markets. In ths market, the vulnerablty s ncreased when supply uncertanty s compounded by addtonal problems lke scarcty of materals, nadequate transportaton and dstrbuton nfrastructure, and rratonal allocaton of avalable supply capacty by local manufactures. Varous types of dscount schedules (all-unt dscount and/or ncremental dscount) may be offered by each vendor n each perod smultaneously, Razm et al. (2009). A mathematcal suppler selecton model for property developers usng Fuzzy Prncpal Component Analyss Automatc Constructon was developed by Lam et al. (2010).Suppler selecton model usng Taguch loss functon, analytcal herarchy process and mult-choce goal programmng was developed Lao et al.(2010). VENDOR SELECTION CRITERIA Followng crtera s are defned as under; 1. Cost The Cost factor s measured, on the bass of mportance of the cost /prce dmensons n the buyng frm s vendor selecton.e. total cost, the vendor wllngness and ablty to share cost data, dscount rate per unt and dscount rate on annually purchased unts, freght cost, outdated product cost, cost of formng relatonshp, etc. The qualty factor s measured, n terms of vendor s ablty to provde nputs that are relable, durable and confrms to buyng frms specfcatons. It also ncludes repar and return rate, product relablty, vendor s qualty systems and qualty certfcatons. 3. Flexblty The flexblty factor s measured on the bass of mportance of flexblty dmensons n buyng frm s selecton process: the ablty and wllngness of the vendor to change order volumes and to mx the ordered tems. 4. Delvery The delvery factor s measured on the bass of mportance of the delvery dmensons n buyng frm s vendors selecton process: ablty and wllngness to expedte an order, how quckly a vendor can delver, the amount of tme that t takes a vendor to delver prototype,the ablty of the vendor to meet due date. 5. Servce The servce factor s measured on the bass of mportance of the servce dmensons n buyng frm s vendor selecton. These nclude the vendor atttude to handlng complants, and the ablty and wllngness to provde problem solvng ads and to share vendor s logstc nformaton. It also nvolves teachng and tranng to the employees of the company and the avalablty of products n stock wth a vendor. 6. Infrastructure, Envronment Management &Polluton Control Ths factor s measured on the bass of mportance of the capacty of the machnes, development of product, producton n the company, avalablty of raw materal n the company and envronmental related certfcates of vendor and company to acheve green computng, and new horzon n energy effcency and e- waste mnmzaton. 7. Informaton, communcaton and Technologcal Capabltes Ths factor s measured on the bass of mportance of avalablty of nformaton, communcaton and technologcal devces and systems wth vendors and manufacturers, vendor techncal nnovatveness, research and development capabltes, etc. 8. Organzaton profle, culture and strategy Ths factor s measured on the bass of mportance of fnancal status of the vendor, hstorcal background for three decades, reputaton of the vendor n the natonal / nternatonal market, organzaton culture and strategy, relatonshp among employer and employees, nformaton exchange level between vendor and company, relaton among labors, organzaton employees and management. ISSN:

3 MULTI CRITERIA DECISION MAKING-MATRIX 0 a12 a13 a1n METHOD (MCDM-MATRIX METHOD) The proposed matrx method s a unfed approach that enables the optmum selecton of a partcular vendor among a number of alternate vendors based on selecton crtera consderng all the ndces concurrently n an ntegrated manner. Ths method combnes varous selecton crtera relevant to a vendor nto a sngle measure so that a comprehensve rankng of the vendors could be made. Ths sngle measure s known as the sutablty ndex. The vendor wth the hghest sutablty ndex s ranked as #1, whch wth the second-hghest sutablty ndex as rank #2, and so on. Ths method s appled n two phases, namely crtera matrx and permanent functon representaton. The determnstc values (crsp scores) of the aggregated assessments.e. ratngs of the vendors and the relatve aggregated weghts of all dentfed vendor selecton crtera are stored n a matrx that s called Crtera Matrx. The sze of ths matrx wll be n x n correspondng to n vendor selecton crtera. The dagonal elements (a s or a s) and the off-dagonal elements (a j s) of ths matrx gve the aggregated ratngs of dfferent vendors and the relatve mportance weghts of dfferent selecton crtera, respectvely. Thus, the crtera matrx s a combnaton of two matrces namely Vendor Ratng Matrx and Crtera Relatve Weght Matrx. Vendor Ratng Matrx: Ths matrx s formed on the bass of determnstc values (crsp scores) of the aggregated ratngs of the vendors versus dfferent vendor selecton crtera. Ths s a dagonal matrx whose elements (a s or a s) represent the aggregated ratngs of dfferent vendors, versus dfferent vendor selecton crtera. a a ann (1.1) Crtera Relatve Weght Matrx: The Crtera Relatve Weght Matrx s formed on the bass of the aggregated weghts of dfferent crtera. The off dagonal elements of ths matrx represent the aggregated weghts of the crtera e.g. the element (a j ) of ths matrx wll gve the relatve mportance weght of j th crtera n respect of th crtera. All dagonal elements of ths matrx are zero because there s no sgnfcance of comparng a crteron w.r.t. tself. Mathematcally, a j = weght of j th crtera/ weght of th crtera a21 0 a23 a 2n an1 an2 an3 0 (1.2) Thus the Crtera Matrx correspondng to n crtera, n general, s wrtten as: a a a a a a a a a a a a n n n1 n2 n3 nn (1.3) Permanent Functon Representaton: Varable Permanent Functon or smply known as Permanent s a standard matrx functon that s used n combnatoral mathematcs, Marcus and Mnc (1965). It s a powerful tool for mult-crtera based evaluaton and rankng of the systems n ascendng or descendng order. The Permanent s smlar to the determnant of a matrx wth a dfference that no negatve term appears n the permanent. Computer software s developed to determne the value of the permanent of the Crtera Matrx. The algorthm s: 1 n ( A) P 0; X a n a ; sgn 1 2, j 1 j ( B)sgn sgn; P sgn, Get next subset of (1, 2,..., n 1) from NEXSUB; f empty, go to ( C) and f j was deleted, then : z 1; otherwse, z 1; x x z a j ( 1, 2,..., n) ( C) P P. x ( 1, 2,..., n); p p p f more subsets reman, to ( B); n1 Permanant 2( 1) p; EXIT. ALGORITHM NEXSUB ( A)[ Frst entry] m 1; j 1; z 1; ext. ( B)[ Later entry] m m 1; x m; j 0; x ( C) j j 1; x ; f x s an nt eger, to ( C). 2 x1 ( ) ( 1) 2 n D z ; f 2, fnal ext; EXIT. ISSN:

4 MEASUREMENT AND DATA COLLECTION Prmary data can be defned as new data used to solve the problem, or queston at hand. The prmary data s facts and nformaton collected by researchers for specfc purpose. The methods for prmary data nvolve ntervews, observaton and questonnare. Intervew technques can be used n dfferent forms such as personal drect contact, phone, e-mal or other communcaton meda. Secondary data can be defned as the data obtaned from any journals, artcles, books, papers and Internet sources, whch could provde wth focused nformaton regardng the vendor selecton process. About 500 hundred journals were consulted to get the secondary data prepared for the questonnare. And ths qualtatve data was converted nto quanttatve data by usng fuzzy ten scale ratng. TABLE 2 RANKING OF STRATEGIC MEASURES (CRITERIA) Determnaton of normalzed weghts The mportance of the crtera assgned by the 26 experts nvolvng 5 automoble ndustres nvolved n manufacturng of lght commercal vehcles. The partcpaton was voluntary but lmted to the executve level nvolved drectly or ndrectly wth the process of vendor selecton. These 26 experts were from purchase, producton engneerng, operaton management, qualty. The partcpaton from purchase and producton department was 60 percent, who were manly nvolved n vendor selecton process. The normalzed average prorty weght of each crteron/sub-crteron usng fuzzy set theory, are gven n Tables 1 and 2, respectvely VENDOR SELECTION USING MATRIX METHOD The matrx method s appled for the vendor selecton problem dscussed n prevous secton n order to valdate the results. The vendor ratng matrces are formed for each vendor based on eght crtera namely cost, qualty, flexblty, delvery, servce, nfrastructure, envronment management and polluton control, nformaton, communcaton and technologcal capabltes, and organzaton profle, culture and strategy, and are wrtten as: TABLE - 1 AGGREGATED AVERAGE WEIGHTS OF SELECTION CRITERIA Based on the prorty weghts, the relatve weght of each crteron wth respect to another crteron s determned. The crtera relatve weght matrx obtaned usng relatve weghts of the crtera s wrtten as: ISSN:

5 The crtera matrces are constructed for each vendor by combnng the vendor ratng matrx and crtera relatve weght matrx as descrbed n secton 1.2. The crtera matrces, so constructed, for vendor V 1 s descrbed below and the permanent /sutablty Index of Matrx can be determned by usng software package developed for fndng the permanent of each crtera matrx. The crtera matrces so constructed for other vendors can also be calculated smlar to above Crtera Matrx for Vendor V 1 and the permanent /sutablty Index of other four Crtera Matrx can be determned usng software package developed for fndng the permanent of each crtera matrx.. Table 3 shows the sutablty ndex and the rankng of each vendor based on selecton crtera. The vendor wth hghest value of the sutablty ndex s ranked as #1, and wth second hghest value as rank #2, and so on. The vendor wth mnmum value of the sutablty ndex s ranked last. TABLE 3 RANKING OF VENDORS BASED ON CRITERIA BY MATRIX METHOD Vendor Sutablty Index Rank # Vendor 1 (V 1) Vendor 2 (V 2) Vendor 3 (V 3) Vendor 4 (V 4) Vendor 5 (V 5) CONCLUSIONS AND RECOMMENDATIONS In ths case study an attempt has been to advance the art of supply chan management by developng heurstc methodologes usng MCDM- Matrx Method whch smplfes the task of suppler selecton and reduces the tedousness as well as the degree of error by drectly nvolvng the decson maker n the selecton process. After calculatng the weghts of each crteron, they are arranged n descendng order of prorty as shown n Table Qualty, Cost and Delvery/ Flexblty occupy the frst, second and thrds ranks respectvely, followed by Servce, Informaton, and Communcaton and Technologcal capabltes, Infrastructure, Envronment Management &Polluton Control and the last s Organzaton profle, culture and strategy. The results show that the Qualty, Cost and Delvery are the most mportant strategc ponters to be consdered n the vendor selecton problem, representng more than 50% (53.66%) of the total weghtng. The local weght of eght crtera s shows that qualty (Local weght of ) s around four tmes mportant than Infrastructure, Envronment Management & Polluton Control (Local weght of ) as well as Organzaton profle, culture and strategy (Local weght of ) 2. The global weghts of each crteron are calculated and arranged n descendng order of prorty. It can be seen that the measures of qualty occupy the top most rankngs n the lst ndcatng that n all the automoble ndustres the rejecton rate of manufactured car s very low whch ndcates that t has hgh very hgh mpact factor towards conformaton to specfcatons. Snce the automobles are hgh end consumer goods whch should provde effcent, relable and safest performance due to nvolvement of human lves, hgh qualty s the supreme requrement. Cost s the next most mportant strategc prorty wth ts weght because cost s an mportant dmenson from busness perspectve. Durng these tough tmes, cost cuttng s the man operaton actvty n automoble ndustry due to large number of multnatonal ndustres and cuttng edge competton n the market. Best efforts are made to source suppler who can provde a conformng qualty tem wth an attractve prce or dscount. 3. Rankng of vendors have been done on the bass of eght crtera and ther rankng has been done as shown n table 3 REFERENCES 1. Carlson P. F. (1990). The long and short of strategc plannng. J Busness Strategy, Ellram L. M. and Carr A. (1994). Strategy Purchasng: a Hstory and revew of the lterature. Internatonal Journal Purchasng Mater Management,), 30(1), Jan S. C. and Larc M. (1979). A model for purchasng strategy. J. Purchasng Mater, management, 15(41), Kser G. E. (1976). Elements of purchasng strategy. J. Purchasng Materals and Management, 12(Fall), Kraljc P. (1983). 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